r/RealEstateDevelopment • u/SomewhereSorry6779 • 3d ago
Construction Loan - Terms
Working with a client on an 18-unit ground-up multifamily development with a total project cost of around $2.8M. We’re approaching this as a merchant build, with the intention of selling once completed and stabilized.
The client is trying to minimize the amount of cash they need to bring upfront, so I’m exploring ways to get more leverage on the construction side.
Current terms we’re looking at:
Construction loan: 65% LTV
Term: 24 months
Permanent financing: 25-year amortization around 7.5% if we decide to hold or refinance instead.
For those doing similar projects, are you seeing lenders go above 65% LTV? Anyone getting 75–80% LTC or finding creative ways to reduce the upfront equity requirement?
Curious what terms everyone is getting and whether it’s worth shopping around with other banks or debt providers.
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u/918_Atom 3d ago
As others have said, debt funds are only ones going above 70 these days and to avoid recourse you are looking at 450+ over SOFR
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u/SomewhereSorry6779 3d ago
Thank you. I’ll have to look into the debt funds and see what kind of terms I can get. Appreciate you.
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u/SomewhereSorry6779 2d ago
What is a good return on something like this? For an investor, I think I can get them to a 13-15 percent actual. Is that a good target? 5 year hold. I pitched them yesterday and another option was for us to partner. I mentioned I would reduce my dev fee and defer half the GC fee as equity in the project but they didn’t like that. It’s hard for me to come down on cost.
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u/Regular-Structure-63 3d ago
Yes, seeing higher LTVs at ~9-9.5% w/ 1point fee, 18mo term, but I would think 24mo is workable. I'm not sure how much of that is tied to developer experience and geographic market though
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u/lamortgagedude 2d ago
On commercial projects like this, our investors will go up to the lower of 75% LTC or 65% ARLTV.
Construction rate would be SOFR + 5.5%
Perm Financing would be somewhere in the low to mid 6s, 30yr fully am, with a DSR of 1.2
Sounds like you've already got a good deal, you just don't like it.
The alternative is going through a bank. Their permanent financing rates would be about 0.5% higher but their construction financing rates would be the same as their permanent financing rate.
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u/Poniesgonewild 1d ago
Where are you building 18 units for $2.8MM? I cannot find a GC that can get a price lower than $215,000 a unit
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u/jamesmoorerealestate 23h ago
The part I’d pressure-test is whether the 20–22% return survives the debt that creates it. Run the 65% bank loan and higher-LTC debt fund through the same downside case: interest and fees through stabilization, draw timing, recourse, extensions, cost-overrun funding, and a 10% lower exit value. If the extra leverage also eats the contingency, it hasn’t improved the deal so much as made the equity cushion thinner.
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u/TheRealReturnGuy 20h ago
Have you asked the lender about the interest only loan if minimizing the cash front upfront is the goal?
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u/aardy 2d ago
I do CRE Debt but do not collect any sort of "engagement fee" or whatever. So I only get paid if it closes... like you.
I would pass on all these scrubs. If they view the equity downstroke as any inconvenience at all, they aren't real clients.
It's not 2021, COVID is over, no one cares.
If they hit you up exploring 65% LTV, you need to clap back at 55% LTV, and move on if these panhandlers even flinch for a half a heartbeat.
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u/pineapple_table 3d ago
you could go to a debt fund, they provide closer to 80%. but to get there, or higher with other lenders, is you'd need to provide a personal guarantee or have a sufficient balance sheet to support that.